AM Best has downgraded and withdrawn the credit ratings of Omega Specialty Insurance Company Limited (OSIL), a subsidiary of Bermuda-based Omega Insurance Holdings.OSIL, which has stopped writing third-party business, saw its financial strength rating downgraded to B++ (good) from A- (excellent). AM Best assigned a negative outlook to the ratings.Parent company Omega had asked Best to withdraw ratings for OSIL.Best also affirmed the A financial strength rating of Lloyd’s Syndicate 958, which is managed by Omega Underwriting Agents Limited.“The rating downgrades for OSIL are due to the significant reduction in the company’s risk-adjusted capitalisation as a result of weak operating performance in 2010 and 2011 and the anticipated withdrawal of capital from OSIL to its parent by way of dividends,” AM Best said in its commenatry.“The negative outlook reflects AM Best’s expectation that risk-adjusted capitalisation will be further reduced following the group’s decision to cease underwriting third-party business through OSIL.”Despite a bad year in a catastrophe-riddled 2011, the prospects for Omega’s Lloyd’s syndicate were better for this year, according to the New Jersey-based rating agency.“On an annually accounted basis, syndicate 958 recorded a loss in 2011 of £52.3 million, with a combined ratio of 132 percent, reflecting the impact of the natural catastrophes throughout the year, including the New Zealand and Japanese earthquakes, US tornadoes and Thai flooding,” Best stated.“A good profit is expected for 2012, assuming a more normal catastrophe experience in the year and taking into account the reduced risk profile of the book of business.”A string of attempts to take over Omega had created uncertainty surrounding the insurer, added Best, adding to concerns about weak operating performance over the past two years.“Subsequently, Omega’s management team has taken positive action to alleviate AM Best’s concerns regarding the group’s risk management processes,” AM Best stated.“Actuarial and risk management teams have been strengthened and greater use made of catastrophe modelling software. Catastrophe exposed business has been reduced, with offshore energy and retrocessional business no longer underwritten, and a more effective reinsurance programme put in place.”